5
Questions About PPF :
The Public Provident
Fund, or PPF, is predominantly a tax-saving instrument but wins on numerous
aspects. While it has a definite lure for the risk-averse investor, it is a
smart retirement vehicle that makes it a good consideration for any individual.
Here are 5 questions
that are often asked of this instrument.
1)
Is the return assured?
The return is most
certainly assured but flexible, not fixed. The account holder is promised a
return every year, though the exact figure fluctuates annually and is decided
by the Reserve Bank of India.
Initially it was fixed and was as high as 12% per annum. Over the years it got
lowered to 8% and crept up a bit again. The returns are reset every fiscal year
and are benchmarked against the 10-year government bond yield. From April 1,
2012, the rate was 8.8% per
annum but got
lowered to 8.7% per annum
from April 1, 2013. This year the interest rate was left unchanged.
2)
How often is it compounded?
The interest on the
PPF account is compounded annually, as against the National Savings Certificate
where it is compounded half yearly.
Though the interest
is compounded annually, the calculation is done every month. It is based on the
lowest balance in the account between the end of the 5th and last day of the month. While the
calculation is done every month, the money is credited to the account only at
the end of the year.
If you are doing a
lump sum investment into your PPF account, do it before April 5. That way you
get the most benefit because your deposit will earn interest every single
month. If you are investing in installments all through the year, it really
does not make a significantly huge difference if you deposit the amount before
or after the fifth day of the month. However, over the tenure of 15 years it
would add up. So attempt to make the deposit before the 5th of the month. If you deposit it later,
you will miss the interest you could have earned that month.
3)
Who can open an account?
Only resident
Indians are permitted to open a PPF account. Non-resident Indians are not
eligible to open an account. However, a resident who becomes an NRI during the
account’s tenure can continue prescribing to the PPF account though the money
in this account is maintained strictly on a non-repatriation basis.
Only one account is
permissible per individual. However, a guardian or parent can open an account
for himself/herself as well as one for a minor.
Importantly, a PPF
account cannot be held jointly though nominations are permissible. In fact, it
is wise to do so. The nomination can be cancelled or updated by filing a fresh
request.
4)
What is the tax break?
This is the only
exempt-exempt-exempt, or EEE, scheme available in India. This indicates that it is
exempt from tax all the way. When you deposit money in the account, you get a
tax exemption under Section 80C. The interest earned is also tax free. On
maturity, the lump sum (interest earned + principal invested) is not taxable.
The limit in a
financial year is Rs 1 lakh under Section 80C. This is the limit whether you
invest in your account and in any other PPF account where you are the guardian.
The PPF limit is Rs 1 lakh for an individual, not per account basis.
5)
Is it risky?
There is no chance
of someone running away with your money. Or later on being told that there is
no way your money can be returned to you. The PPF is a sovereign-backed
instrument which means it is backed by the government. This is the highest
security an investment can have and, therefore, the safest.
Moreover,
investments in a PPF account cannot be attached under any court order with
respect to any debt or liability of the account holder. Source :: //www.moriningstar.in
dated 20.05.14.//